Interpreting Sustainability in Economic Terms: Dynamic Efficiency Plus Intergenerational Equity

16 Pages Posted: 27 Aug 2002

See all articles by Robert N. Stavins

Robert N. Stavins

Harvard University - Harvard Kennedy School (HKS); Resources for the Future; National Bureau of Economic Research (NBER)

Alexander F. Wagner

University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute

Gernot Wagner

New York University (NYU) - Department of Environmental Studies; New York University (NYU) - Robert F. Wagner Graduate School of Public Service

Date Written: September 2002

Abstract

Economists have expended considerable effort to develop economically meaningful definitions of the somewhat elusive concept of "sustainability." We relate such a definition of sustainability to well known concepts from neoclassical economics, in particular, potential Pareto improvements (in the Kaldor-Hicks sense) and inter-personal compensation. In the inter-temporal realm, we find that dynamic efficiency is a necessary but not sufficient condition for a notion of sustainability that has normative standing as a goal for public policy. We define sustainability as dynamic efficiency plus intergenerational equity. Further, we argue that it is not unreasonable for economists to focus on the efficiency element, leaving equity considerations to the political process. The analogy to the relationship between potential Pareto improvements and (intragenerational) transfers can facilitate discussions about sustainability, both within the economics community and as part of an interdisciplinary discourse, and makes the basic concepts easier to operationalize.

Keywords: Sustainability, Dynamic Efficiency, Intergenerational Equity

JEL Classification: Q2, Q3

Suggested Citation

Stavins, Robert N. and Wagner, Alexander F. and Wagner, Gernot, Interpreting Sustainability in Economic Terms: Dynamic Efficiency Plus Intergenerational Equity (September 2002). Available at SSRN: https://ssrn.com/abstract=326521 or http://dx.doi.org/10.2139/ssrn.326521

Robert N. Stavins (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

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Alexander F. Wagner

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Gernot Wagner

New York University (NYU) - Department of Environmental Studies ( email )

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New York University (NYU) - Robert F. Wagner Graduate School of Public Service ( email )

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